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Thermal coal prices have increased from around $US100 a tonne to record highs of $US130 a tonne, driving revenue 40 per cent higher in 2011. “Since the acquisition, we have maintained 100 per cent of Centennial Coal’s management, and we have been working with management trying to get to know more about the assets, the people, the system and how they operate," says Banpu chief executive officer Chanin Vongkusolkit, in Australia to bed down the Centennial acquisition.

Banpu now owns 10 producing coalmines and three key development projects north-west of Sydney and in the Hunter Valley, near Newcastle.

It delivers around 10 million tonnes of thermal coal to the Vales Point, Eraring, Wallerawang and Mount Piper power stations – among the state’s most important power generators.

Eraring Power Station on Lake Macquarie is Australia’s equal largest power generating asset, producing around 2640 megawatts of electricity each year.

The massive coal-fired plant burns more than 5 million tonnes of coal a year from five mines around the power station.

The confidential supply contracts are signed at a discount to export prices, because domestic supplies can be lower quality, cheaper to produce and easier to transport than export-quality coal.

Banpu is keen to continue providing coal to the domestic market. But it plans to push for higher prices as existing contracts start to roll over from 2013.

The existing contracts with domestic power generators will roll off gradually from 2013 to 2022.

It will also push for shorter contract periods.

“Pricing will be more export parity price," says Banpu chief financial officer Somruedee Chaimongkol. According to a recent public statement, Banpu is prepared to renew domestic contracts “subject to acceptable pricing and terms".

The push towards export parity coal prices comes as the NSW economic regulator, the Independent Pricing and Regulatory Tribunal (IPART), says that electricity prices for retail users will rise as much as 18 per cent for 2011-12. Electricity prices rose 12.5 per cent last year on average, largely due to network upgrades and expensive green energy schemes.

UBS analyst David Leitch says coal prices have played an “insignificant" role in recent price increases despite record export prices. But a push towards export parity coal prices could put upward pressure on electricity costs.

“We would expect if the domestic black coal price goes towards $60 a tonne from current levels, it would push electricity costs up by $4 per megawatt hour," Leitch says.

NSW plays an important role in setting coal prices, he says, so increases in NSW coal costs can lead to increasing electricity prices across the country.

However, if a carbon price is introduced, Victoria may play a greater role in setting the price of electricity because generators there emit more carbon.

As for more acquisitions within Australia, Banpu’s Vongkusolkit says the company will spend the next two years expanding Centennial’s assets.

“We have some room [on our balance sheet] but we want to concentrate on Centennial for the first two years. If it is successful than we can look outside."

During the 1990s, Banpu developed power generation assets in Thailand and moved south into Indonesia, developing open-cut coal mines. In 2001, it implemented an Asian coal-based strategy.

Last year, Banpu produced 22 million tonnes of coal from four Indonesian mines for export to Asian markets including Japan, China, Taiwan, Hong Kong and Korea. As coal prices increased, Banpu looked towards Australia.

“During the last two to three years, we started to look at Australia because it has very good coal reserves that can be exported," Vongkusolkit says. “Last year Centennial was a good fit for us in many aspects, because they produce thermal coal and they have good management, so we started to approach them."

The Centennial acquisition was part of the company’s five-year strategy to increase exposure to coal, according to CFO Somruedee. The strategy will decrease the proportion of revenue derived from power generation in Asia. Banpu is bullish on coal prices and expects annual revenue growth between 12 to 13 per cent.

“There are a few scenarios – the high case is above $US100 per tonne or $110 per tonne."

Banpu expects annual production to increase from 25.9 million tonnes in 2010 to around 45 million tonnes in financial year 2011 on the back of the Centennial acquisition.

In March, the company extended its Asian footprint by taking a strategic stake in Australian-listed Mongolian coal explorer Hunnu Coal. Banpu took a 12.39 per cent stake at a 20 per cent discount of $1.50 per share for $45 million.

Hunnu boasts a coal resource of more than 400 million tonnes across its projects. “Mongolia has very good coal reserves – they have some coking coal and we wanted to get to know some assets," Vongkusolkit says.

. “We view [the Hunnu deal] as a lower risk way to get to know Mongolia."